02/22/2011

After significant delays, Fisker Automotive Inc. is preparing to launch its luxury plug-in hybrid next month. The company is armed with $150 million in new capital raised at a pre-money valuation of about $600 million, and it's positioning itself for a potential IPO attempt later this year.

The Irvine, Calif.-based car maker has a well-received design for the vehicle, done by the company's founder, chief executive and chief designer, Henrik Fisker, combined with a cost-effective business plan. It's outsourcing manufacturing for its first line of cars, called Karma, for which it has built up a strong order book. For the second line of cheaper sedans it has acquired a former General Motors Co. factory on the cheap. It has also procured large, low-interest government loans.

On the down side, the delays in the car's launch have allowed large competing automakers to chase Fisker's tail. That in turn may have made the company's intellectual property less differentiated. It is also addressing a limited market of expensive luxury sedans, though it has a second line of cheaper cars coming down the pike.

As the latest equity round indicates, venture investors believe in Fisker's potential. The company offers "potentially a huge return in a fairly short order," said Scott Sandell, a general partner of New Enterprise Associates, which just invested in the company's latest round. "Tesla is worth $3 billion," said Sandell, referring to electric vehicle maker Tesla Motors Inc., which went public last year. "The public markets want a few more of these. I think it could be a blockbuster IPO."One clean-technology analyst said several banks are trying to gain Fisker's business as it starts eyeing the public markets.

The company said it now has enough capital to launch its first car and manufacture the second line."We have over $150 million in the bank--we're really financially strong," said Joe DaMour, the company's chief financial officer.

Fisker said the latest round is "definitely an up round."

Long-time backer Kleiner Perkins Caufield & Byers is also participating in the new round. The company declined to name other investors in the round, which is still open. "We might raise a little more," Fisker said. The deal is somewhat unusual for NEA since most of its investments are early stage.

The company raised $189 million in a separate round last year. To date, it has raised more than $500 million in equity. Besides NEA and Kleiner, investors include A123 Systems Inc., Ace Investments, Palo Alto Investors, Qatar Investment Authority and Quantum Fuel Systems Technologies Worldwide.

The company is about to start full production of the Karma on March 21. "By October we'll be on a full monthly volume of just over 1,500 cars a month," Fisker said. The goal is to manufacture 15,000 Karmas annually, though that won't be reachable in 2011 due to slower ramp-up."Fisker has a backlog of hundreds of millions" of dollars, said Sandell, all of which it could deliver on shortly. The company has taken deposits of $5,000 each on more than 3,000 preorders.Not everything is running smoothly. The company has increased the price of the car--each Karma will cost $95,900, a price that's 19% higher than originally proposed--and delayed its release, after originally promising to start selling in mid-2009.

"Sometimes people forget that we started developing this vehicle in the first quarter of 2008," Fisker said. He said that even given a delay, which he attributed to the financial crisis, it has taken the company only three years for the release. "Actually that's still a record time for development for any vehicle anywhere on the globe," Fisker said.

He added: "Considering that this is a brand new power train by a brand new company by a brand new team that also had to raise money with the DOE, and has raised over $1 billion, there aren't that many examples like that." The Department of Energy selected the company for a $529 million.

One of its current transitions is to stop taking reservations from interested customers and to pass these along to dealers. It is setting up a network of 43 dealerships in the U.S. and as many in Europe. The phase-in is a work in progress, said Fisker, as the dealers aren't yet up and running, even as the company isn't taking deposits either. Showrooms should be up by July, he said.Even as the company gears up, "the competition is not going to stand still for them," said Oliver Hazimeh, a partner at management consulting firm PRTM.

But Sandell said he doesn't worry about the big automakers. "They have the classic incumbent's problem--they have something to lose, not just something to gain," he said.

Still, a plug-in electric car is no longer a huge, upending market leader that it would have been two years ago. General Motors is already selling its plug-in Volt. At this point, said one venture investor not connected to the company, Fisker Automotive is left with a great design, but not with the huge leap forward in market differentiation that it was peddling when it was originally looking for funding.

But Sandell said the market has actually been moving favorably for Fisker by showing consumers that plug-in vehicles are real, which is driving interest.

The new capital, from investors NEA, Kleiner Perkins and others, comes at a pre-money valuation of about $600 million. It's a sign its investors are optimistic they have a blockbuster potential IPO on their hands, though a delayed product release may have diluted some of its early advantage.

COMMENTARY: Fisker Automotive has substantial disadvantages versus Tesla Motors, its primary competitor in the high-end electric sports car market. Fisker will be producing and delivering beginning this coming March, while Tesla already began deliveries of its Sporsters beginning in 2009. I am impressed that Fisker has taken deposits on 3,000 Karma's, which based on the price tag of $95,000 translates into $285 million in gross revenues if all of them are delivered in 2011.

Tesla Motors has first mover advantages in the high-end electric sports car market, had a very successful IPO in June 2010, inspite of limited revenues from sales of the Sportster and substantial operating losses in 2009 and 2010.

We will quickly determine if the Karma will be a strong seller and how it will hold up as the vehicles hit the road. Fisker's Karma is a hybrid, which gives it the advantage of being able to use both regular gasoline and electrical power from batteries for power. I have been reading that cold weather can create problems with electrical batteries, so having the ability to use gasoline is really an advantage for the Karma.

On the other hand, a lot has happened to the price of gasoline in the last few months, and with the recent upheavals in the Middle East and North African nations, the price of oil will go up significantly, increasing gas prices even more. Some oil experts predict that gas could go increase to $5.00 by summer 2011. Other automatkers are introducing hybrids of their own, and this makes a hybrid like the Karma not as attractive as it once was, giving Tesla Motors a real advantage.

In a previous blog post dated January 11, 2010 titled, "Karma Hybrid Sports Car Maker Fisker Automotive Raises $115 Million", I pointed out that Fisker had projected that the Karma would not go into production until 2012, so being able to start production in March 2011, one year ahead of schedule, is very impressive. Let's hope that they can take advantage of thisFisker Automotive has deposits on 3,000 Karma's, which is nearly twice the number of Sporsters delivered by Tesla Motors, and that's very significant, since it gets Fisker Automotive closer to their projected 5,000 breakeven point.

In another blog post dated February 19, 2011 titled, "Tesla Motors Faces A Rough Road Ahead As It Tries To Compete Against Bigger, Deep Pocket Automakers", I mentioned that Tesla Motors had numerous challenges, and that I had estimated their breakeven point was somewhere in the vicinity of 10,000 and 12,000 vehicles. Tesla Motor's huge accumulated losses over the last two years, prospects for continued red ink in 2011 and 2012, might give Fisker Automotive an upper hand. The new investment from heavyweights like Kleiner Perkins and NEA appears to confirm this, and lends a lot of credence for a possible IPO in 2011.

This is going to be a race to the finish line for both Fisker Automotive and Tesla Motors. Both are working on producing lower-priced sedans in 2012. A lot can happen by then. The instability in the Middle East and North African nations, the potential for huge gas price increases, and the possibility of a new war in the Middle East, and its affect on our recovery can put a severe damper on future prospects of both companies.

Comments

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I think Fisker Automotive should add addition feature of its car. Aside from being hybrid, which gives it the advantage of being able to use both regular gasoline and electrical power from batteries for power. I think they should make the roof of their car a solar panel since the design looks like one. I would be useful in charging the battery while it on a gasoline mode.

Fisker said that not a dime of the $539 million DOE loan will be used for the production facility in Finland. The second car, the NINA (codename) will be manufactured in the U.S. That's the one that will produce 2,500 jobs. This news was spread by Sarah Palin and the republicans. It was all politically motivated to embarass the president, coming on the heels of the Solyndra bankruptcy and the $535 million loan

Good luck on the production of this car. It looks quite stylish and we really hope its not just all looks since it's a hybrid type. We also expect the car's budget in construction to provide efficiency on the car's performance and outlook.